Q1 strategic deals to drive PPD lab unit growth in 2011

By Nick Taylor

- Last updated on GMT

PPD pointed to three first quarter strategic deals, in Phase I and cGMP, as evidence its laboratory business will improve later in 2011.

Laboratory services posted weak first quarter results​ but business won in the period will ensure better performance later in the year, said PPD. In particular, PPD highlighted three strategic or preferred partner deals that will begin the generate revenues in the second quarter.

The weaker [first quarter lab services] performance should be a one-time event​”, David Windley, equity analyst at Jeffries & Co, said in a note to investors. Windley expects significant expansion of laboratory service margins as revenue grows quarter-on-quarter.

Some of the sequential revenue growth will be driven by three strategic deals PPD won in the first quarter. Expansion of an existing relationship has resulted in the cGMP (current good manufacturing practice) unit at PPD becoming a preferred provider to a large pharma.

PPD also secured two Phase I strategic deals, one of which is an expansion of an existing relationship, in the first quarter. Alliance opportunities are beginning to spread beyond Phase II to IV and into the lab unit, said PPD, echoing comments made by Icon last week​.

Strategic partnerships now account for the majority of revenues and backlog at PPD, said Fred Eshelman, executive chairman of the board at the contract research organisation (CRO). The strategy is paying off, said Eshelman, but revenue from these deals tends to be “a little lumpy​”.

PPD expected a strategic partner to add $100m (€68m) to its backlog in the first quarter but this failed to occur. This project may be internalised by the sponsor or put up for competitive bidding, said Eshelman, but PPD “is still in the mix​” for the business.

RFPs & mid-sized biotech growth

PPD followed Icon in reporting year-on-year and sequential growth in request for proposals (RFP). Speaking in a conference call with investors, Eshelman said the value of Phase II to IV RFPs was up 33 per cent over the average quarter in 2010.

The top [RFP] therapeutic areas were oncology and infectious disease​”, said David Grange, CEO of PPD. Most of the RFPs came from big pharma and mid-sized biotech companies.

PPD has seen a notable increase in business from mid-sized biotechs but demand from smaller players in the sector is yet to pick up. Sales teams at PPD are looking for work from small biotechs and expect demand to improve as funding from venture capital markets filters through.

Shares in PPD closed down 3.49 per cent at $30.69.

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